Consumer Protections for Prepaid Cards

Learn how the Prepaid Accounts Rule protects prepaid card users.

People who aren’t eligible for a credit card often turn to prepaid cards to buy necessities and pay for services. With this type of card, the consumer loads funds on the card and can then withdraw the money from ATMs or make purchases at stores.

In the past, prepaid cards had few consumer protections. But on April 1, 2019, the Consumer Financial Protection Bureau's Prepaid Accounts Rule went into effect. This Rule offers a series of protections for users of these types of cards.

Read on to learn more about how prepaid cards work and what kinds of consumer protections are available under the Prepaid Accounts Rule.

How Prepaid Cards Work

One alternative to using cash or a credit card is using a prepaid card. You load money on to the card with direct deposit, checks, or cash, and then you may take the money out from an ATM when you need it or you may buy items at stores using the card.

Prepaid cards often have high fees, like monthly fees, activation fees, fees to get cash, customer service fees, reloading fees, bill payment fees, ATM withdrawal fees, overdraft fees, and more. And, in the past, most cards didn’t protect you if you lost the card or if you needed to dispute an item or service you bought with it. (Credit cards, on the other hand, and to a lesser degree, debit cards, have provided protections in these areas for many years. Read about how to dispute a billing error on your debit or credit card statement.)

The Prepaid Accounts Rule

The Prepaid Accounts Rule, sometimes called the Prepaid Cards Rule, applies to different types of prepaid cards, such as prepaid debit cards, digital wallets, peer-to-peer transfer apps that hold balances (like Paypal or Venmo), payroll cards, tax refund cards, and government benefit cards. However, some kinds of cards—like gift cards, disaster-relief cards, and health-related cards—are not affected by the Rule.

The Rule requires specific upfront disclosures for prepaid cards, limits a consumer’s liability if a card is lost or stolen, and generally makes prepaid cards a safer product for consumers.

Required Disclosures

Under the Prepaid Accounts Rule, the financial institution issuing the card must give you specific disclosures before you get the prepaid card. For example, the institution must disclose:

  • your liability for unauthorized electronic fund transfers
  • the telephone number and address of the person or office to be notified when you believe that an unauthorized electronic fund transfer has been or might be made
  • any fees imposed by the financial institution for electronic fund transfers (or for the right to make transfers), and
  • how to resolve errors. (12 C.F.R. § 1005.4, § 1005.7.)

Limitation on Losses for Lost or Stolen Cards

The Rule also limits a consumer's liability when a card is lost or stolen. Your liability for unauthorized electronic fund transfers depends on when you report the loss or theft. (The following information applies in situations when the financial institution provides periodic statements for the prepaid account and the account isn’t subject to an exception for unverified accounts.) (12 C.F.R. § 1005.6.)

Within two business days. If you tell the financial institution within two business days that your “access device” (see below) has been lost or stolen, then your responsibility for unauthorized charges is limited to:

  • $50 or
  • the amount of unauthorized transfers that occur before you notify the financial institution.

More than two business days after learning of the loss or theft, and up to 60 days after statement transmittal. If you notify the financial institution more than two business days after learning of the loss or theft, but up to 60 days after transmittal of the statement showing the first unauthorized transfer made with an access device, your liability can’t exceed the lesser of $500 or the sum of:

  • $50 or the amount of unauthorized transfers that occur within the first two business days, whichever is less, and
  • the amount of unauthorized transfers that occur after the close of two business days and before notice to the institution, provided the institution establishes that these transfers would not have occurred had you notified the institution within that two-day period.

More than 60 days after statement transmittal. If you notify the institution about an unauthorized electronic fund transfer that appears on your periodic statement more than 60 days after the statement is transmitted, for transfers within the 60-day period, your liability is the lesser of $500, or the sum of:

  • the lesser of $50 or the amount of unauthorized transfers in first two business days, and
  • the amount of unauthorized transfers occurring after two business days.

For transfers after the 60-day period, you have unlimited liability until the financial institution is notified, provided the financial institution demonstrates that these transfers would not have occurred had you given notice within the 60-day period.

Limitation on Losses After an Unauthorized Transfer Not Involving Loss or Theft

If the card or access device was not lost or stolen, your liability depends on when you report the unauthorized electronic fund transfer.

Within 60 days of the statement. If the access device was not stolen or lost, if you notify the institution within 60 days after transmittal of the periodic statement on which the unauthorized transfer first appears, then you have no liability.

After 60 days after the statement. If you report the unauthorized transfer more than 60 days after transmittal of the periodic statement on which the unauthorized transfer first appears, you have unlimited liability for unauthorized transfers that happen 60 days after the periodic statement and before notice to the financial institution.

Other Protections Under the Prepaid Accounts Rule

The Rule also protects consumers from expensive overdraft penalty fees, provides a process that financial institutions have to follow for investigating and resolving errors, and requires the financial institution to give consumers free and easy access to account information.

Talk to a Lawyer

If you have additional questions about prepaid cards and your rights, consider talking to a consumer protection lawyer.

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